Someone recently asked me to explain Bitcoin. More specifically, why do people (some people at least) covet it. Now this person happened to be a venture capitalist, who I’ve known for a long time. And he knows that I like to find the one clear reason for investing in something. Sweeping away all the minor reasons, the nice to have’s, to find the fundamental real reason I like an investment.
Now, a few years ago, I would have immediately jumped to Bitcoin’s special powers. Those 5 unique traits, of Bitcoin: it’s immutable, transferable, uncensorable, anonymous, secure.
But these are, the utilitarian properties of Bitcoin. They’re not the reasons people value Bitcoin. These properties make us more confident that we’ll be able to retain the value we place in our Bitcoin. But they’re not the reason we assign value to Bitcoin, in the first place. It’s easy to test this point by the way. If I gave you one share of common stock, in WeWork, and I told you, this stock certificate is globally transferable, every transaction is immutable, you can securely store it better than anything else on earth, oh, and you can own it, anonymously. In other words, this stock certificate has all the utilitarian properties of Bitcoin. Would that make your share of WeWork Common Stock certificate valuable? No. It wouldn’t. Because all you've done is wrap a bunch of nice properties, around something, that probably has no value. It’s like picking up a half eaten hot dog on the road and then asking your friend if they’d like to buy it. They’d probably say no. “It has no value.” And then if you said “Ok, but what if I put the hot dog in this amazing vault, that only you have access to, and you can trade the hot dog to anyone, in the world, without a middle man, and with no counter-party risk! Now would you like to buy it?” They'd probably say nope, they wouldn't. Because those fancy properties don’t transform a worthless thing into treasure.
People who value Bitcoin, often compare it, to Gold. So why do people value Gold? Remember we’re looking for that one fundamental reason. Well in the 20th century, with the rise of Government-Issued Fiat Money, Gold became a safe harbor, against people’s greatest economic fears: massive government deficits, debasement of the country’s currency, runaway inflation. Gold became a key holding of the 20th century economically literate investors. And the price of gold, served as a warning sign, an index, an index that measures the fears that economically savvy investors have about government fiscal mismanagement.
So what about Bitcoin? Bitcoin , is a fear index, but for the 21st century. An index, of the fears of technologically informed people. You could say Bitcoin, is a key holding of the nerds.
So while inflation was the 20th century boogeyman, but it’s been tamed, Bitcoin is an insurance policy, a hedge, against some of our biggest mdoern fears. In this respect, Bitcoin is very much what you might call modern gold. Gold is ultimately a fear index for inflation. Bitcoin, just addresses a different set of fears. And the rising price of Bitcoin, serves as an index to gauge the level of those fears. The fear of, surveillance capitalism, the loss of agency and control over our digital identities, our privacy. Fear of censorship. Being de-platformed. Digitally quarantined, by some powerful corporation. The fear of, the regulatory state. The rise of permission-based societies. Banking restrictions. Unjust asset seizures. Closed borders. The fear of, modern day lawlessness. Cyber theft. Chargebacks. Dishonest counterparties. The fear of, rogue governments. Seizing and nationalizing commercial enterprises, and private property. The price of Bitcoin is volatile because our modern world is volatile.
But there isn’t another asset on earth that allows anyone to hedge against these growing 21st century risks, other than Bitcoin.
And THAT is the fundamental reason that Bitcoin has value. That is what makes bitcoin worth watching and holding. If you want to know, which way, the price of Bitcoin is going? Just look around you. Are you seeing more power being concentrated, in a smaller number of unaccountable global corporations? More regulatory restrictions to the way you want to live your life? Are you concerned about increasing, societal disruption? More frequent global pandemics? Do you have a growing, unease, with the way modern economies are structured, with the state of capitalism itself? And how some governments may respond to those concerns? If you think the trend line for these 21st century problems is going up, then you already know which way Bitcoin is headed.
If you liked what you heard on this video, please hit subscribe and I will talk to you next time.
Let us know what you think by joining the WAX community: